Why is the Philippines slashing rice imports?

MANILA, Feb 15 - The Philippines plans to import less than 1 million tonnes of rice this year, about two-fifths of its record purchases of the national staple in 2010 as it seeks to contain government costs.

Here are some questions and answers on why the Philippines is slashing rice imports and how this impacts on world rice prices:

WHY IS THE GOVERNMENT SHARPLY CUTTING IMPORTS?

The administration of President Benigno Aquino has said the previous government had imported more rice than was needed, resulting in oversupply and excess government stockpiles.

The Philippines, the world's biggest rice importer in recent years, bought a record of 2.45 million tonnes last year. Of those, deliveries of 56,000 tonnes from Vietnam are still pending -- the shipment had to be delayed due to a lack of storage capacity.

When Aquino took office at the end of June, the country's imported rice inventory was equal to 70 days of demand, more than double the 30-day stock the National Food Authority is mandated to maintain during the lean season that starts in July.

That inventory did not include stocks of domestic unmilled rice at its warehouses.

With debts ballooning to around 177 billion pesos ($4 billion) last year, the state-run NFA's obligations have become one of the biggest drags on public sector debt, which cover the national government and state-owned firms.

DOES THE PHILIPPINES HAVE ENOUGH RICE STOCKS?

At end-January, the country had rice stocks of 3.39 million tonnes, including 1.7 million tonnes in NFA warehouses, enough to cover domestic needs for more than 90 days.

For most of the year, the NFA is required to maintain a 15-day rice buffer stock, which rises to 30 days during the lean season of July to September.

Agriculture Secretary Proceso Alcala said early rains were likely to boost the first-quarter rice crop. Rain-fed areas comprise nearly half of 2.7 million hectares of rice crops.

The weather bureau has said it expects above-normal rainfall even during the summer months of March to May due to the La Nina weather phenomenon, which should also boost output.

Manila expects first-half rice output to increase 15.4 percent from a year earlier to 7.64 million tonnes, with total output this year forecast to hit a record of 17.4 million tonnes.

The Philippines is normally hit by around 20 typhoons a year. The government said it had factored bad weather into its decision to slash imports this year.

HOW WILL LOWER RICE IMPORTS IMPACT PHILIPPINE INFLATION?

Food accounts for about half of the consumer price basket, with rice making up a substantial portion of the food index, so price changes can have a significant impact on inflation.

At the height of the food crisis in 2008, when the country's record rice purchases drove global prices to new peaks, increases in the price of rice pushed the annual inflation rate to 12.2 percent in July 2008, the highest in nearly 17 years.

The central bank has said inflation is under control, with upside risks coming mainly from global food and oil prices.

January inflation data showed food prices climbed an annual 3.1 percent, up from 2.0 percent in December.

Last week, the central bank raised its forecast for inflation in 2011 to 4.4 percent, from 3.6 percent previously, and it is expected to raise interest rates by mid-year.

WILL LOWER PHILIPPINE RICE IMPORTS BRING DOWN GLOBAL PRICES?

Lower import volumes from the Philippines should help ease pressure on rice prices, which had risen after countries such as Indonesia and Bangladesh rushed to boost stockpiles.

The Philippines was the world's biggest rice buyer in recent years and it usually ordered early in the year, or in the last quarter of the previous year.

The size and timing of its orders were an important influence on global rice prices, with the world's biggest sellers, Thailand and Vietnam, closely watching its buying plans.

The excess stocks this year have allowed it to time purchases to the Asian harvest, when prices normally moderate due to the supplies entering the market.

The Vietnam Food Association said in a statement on Saturday it would lower the floor prices for both 25 percent and 5 percent broken rice early next week. The industry body usually cuts the floor prices for rice exports before harvest peaks early next month for Vietnam's largest rice crop.

The decision to allow private rice traders to import most of the rice needs may also result in cheaper offers from more exporters. The NFA chief said importation by private traders would lessen price manipulation, resulting in cheaper purchases.

(Source: http://malaysia.news.yahoo.com/rtrs/20110215/tbs-philippines-rice-q-a-8bedc88.html)